What I don't understand is how the SEC ruling that Prosper was selling unregistered securities makes anyone more or less harmed than they were 2 months ago.
It does seem strange, doesn't it? All this hubub suddenly after an SEC action that doesn't discuss or even relate to the actual problems investors have experienced.
Is it just a crack to stick some dynamite in?
I believe you need to think like a lawyer to understand. Suppose you're a lawyer, and you're presented with a big list of issues, such as the list in the letter some investor/lenders wrote a few months ago. You can reread that letter here:
http://fred93blog.blogspot.com/2008/06/prospercom-lender-lawsuit.htmlYou'd be scratchin' your head, saying ot yourself, "How the hell am I gonna prove those things." Those items tend to be of the form "They didn't do some particular thing good enough." Well, what is the standard against which we judge that? What evidence do we need to produce to show that they were incredibly sloppy? Etc. From the lawyer's perspective, its a bunch of work, and its all uncertain.
Now appears the SEC ruling. The situation from the lawyer's perspective changes completely. The SEC has ruled that a law has been violated. Whether or not that's the grievance that the investors are upset about, that's something a lawyer can hang his hat on. Its free. All he has to do is produce the SEC document. The level of difficulty for the lawyer has been reduced tremendously.
You and I may not feel comfortable with this situation. When I was a kid it was common to refer to a certain kind of lawyer as "ambulance chasers". Seems like whenever there's an SEC action such as this, or even when the stock price of a public company falls suddenly, a bunch of lawyers file boilerplate class action lawsuits the next day. Without actually knowing anything about the facts of the case, they each hope to be first to scoop up some grieving victims, and parade them in front of a judge, to argue that the victims should be certified by the court as a class, and he ought to be the lawyer to lead the class action, and scoop up his 33% or whatever. These are no less ambulance chasers than the lawyers who chase actual ambulances.
Its kinda sad, in a way, because the things the SEC found wrong can probably be easily fixed. I offer as evidence the fact that Lendingclub has fixed them. On the other hand I don't think Lendingclub's present model is going to work. There's no auction. LC sets all the interest rates too low.
One can argue that the SEC did something dumb here. An innovator always has regulatory risk. The regulations aren't general principles. They're specific rules written with the old ways of doing things in mind. When somebody comes along with something a bit new and different, sometimes some flexibilty and creativity are required.
On the other hand, there are things about the interface between Prosper and investors that desperately needed to be regulated, and the SEC is the regulator who protects investors. Remember all the false advertising? I think the SEC should have regulated that. Strangely enough, in the investment world the National Association of Securities Dealers does much of the regulation of advertising. I dunno. As things are presently arranged, they don't regulate Prosper either. Nobody was regulating how Prosper treated the investor. That's bad. Had to be fixed.
Of course whatever you think of the SEC, there is no question that Prosper has pissed off large numbers of customers (ie investors, ie lenders), in many ways, and that was a really dumb thing to do. I could go on and on about this. The sins range from ignoring us to mishandling collections to outright insulting us (pick one of the famous Shira quotes, or the incredible community relations faux pas). When handling other people's money, this just isn't a good idea to piss off large numbers of those people.
Sorry for the long answer. Maybe "yes" would have been better.
